J.M. Smucker to buy Twinkies-owner Hostess Brands in $5.6 billion deal

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[1/2]Hostess Brands "Twinkies" are displayed in a store in the Manhattan borough of New York City, U.S. July 5, 2016. REUTERS/Brendan McDermid/file photo Acquire Licensing Rights

Sept 11 (Reuters) - J.M. Smucker (SJM.N) said on Monday it will buy Twinkies-maker Hostess Brands (TWNK.O) in a $5.6 billion deal, as major U.S. packaged food companies look to expand their brand portfolios with pandemic-era fortunes dwindling.

In recent months, the U.S. packaged food industry has seen an uptick in mergers as most of the companies seek to improve volumes by rebranding portfolios after benefits from price hikes started wavering.

The equity value of the deal stood at $4.55 billion, as per Reuters calculations, with Jif peanut butter maker J. M. Smucker paying Hostess shareholders $34.25 per share. The cash-and-stock offer represents a premium of 54% on the stock since the day Reuters reported the company was exploring a sale.

Shares of Hostess have since surged 27% and were up 19% at $33.49 in premarket trading on Monday, while those of J.M. Smucker's were down 7%.

Hostess Brands became an acquisition target after its price hikes boosted revenue but fueled investor concerns over its prospects with its volume growth consistently declining.

The J.M. Smucker and Hostess deal follows a spree of other deals including Campbell Soup's (CPB.N) $2.7 billion deal for Rao's sauce maker Sovos Brands (SOVO.O) and Unilever's (ULVR.L) purchase of premium frozen yogurt brand Yasso in North America.

J. M. Smucker said the deal is expected to close in the third quarter of its current fiscal year and represents an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of about 17.2 times based on its estimate of Hostess Brands 2023 results.

Campbell Soup's acquisition of Sovos Brands represented an adjusted EBITDA multiple of 14.6 times, including run rate savings, and 19.8 times excluding those. The food and tobacco sector currently trades at 14.4 projected 12-month EBITDA on average, according to LSEG data.

Based in Lenexa, Kansas, Hostess was founded in 1930 and is behind several iconic household brands, including Ho-Hos, Ding Dongs, Zingers, and Voortman cookies and wafers.

J.M. Smucker, which also houses coffee and pet food brands, has a market valuation of over $14 billion and had raised prices of its jams and jellies, which helped boost its profit forecast for the year.

Reporting by Dimpal Gulwani and Ananya Mariam Rajesh in Bengaluru and Anirban Sen and Abigail Summerville in New York; Editing by Savio D'Souza and Shinjini Ganguli

Our Standards: The Thomson Reuters Trust Principles.

Anirban Sen is the Editor in Charge for U.S. M&A at Reuters in New York, where he leads the coverage of the biggest deals. After starting with Reuters in Bangalore in 2009, Anirban left in 2013 to work as a technology deals reporter in several leading business news outlets in India, including The Economic Times and Mint. Anirban rejoined Reuters in 2019 as Editor in Charge, Finance to lead a team of reporters, covering everything from investment banking to venture capital. Anirban holds a history degree from Jadavpur University and a post-graduate diploma in journalism from the Indian Institute of Journalism & New Media. Contact:+1 (646) 705 9409

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